I am 34, married, with a four-year old daughter. Monthly take-home salary is Rs 60,000. Post all expenses, I am left with Rs 5,000, which I plan to invest for wealth accumulation. I have two loans and would like to close the home loan by retirement. The equated monthly installment (EMI) for home loan is Rs 10,000 (15 years). The EMI for personal loan is Rs 3,000. Long-term goals are retirement, daughter's marriage.
Assets: Term insurance of Rs 15 lakh till 60 years of age. Medical insurance (from employer) for up to Rs 2 lakh.
Goals: Need Rs 1 crore by retirement (11 years); Rs 7.5 lakh for daughter's wedding, 250g gold, in 20 years.
PROBLEM POINTS
On the investments side, equity allocation is insufficient. Since your goals are far off, up your equity allocation from 70 to 80 per cent. As you near your goals, gradually lower it and increase debt allocation.
Exposure to fixed return instruments is too high. There is a constant contribution to employee provident fund (EPF). So, don't bother yourself with recurring deposits, instead, focus on equity. For debt, consider a debt fund. Your ongoing investments in debt (EPF, recurring deposits) account for 85 per cent of total monthly investments and a low equity exposure reduces the returns on your portfolio. Do not renew one-year deposit and exit the five-year deposit if there is no cost involved.
Tax allocation is overdone. Since Section 80C has a limit of Rs 1 lakh, consider a tax-saving fund only if you have not reached that level after paying insurance premium, home loan EMI and EPF contribution.
Also Read
Exposure to stocks is half of equity portfolio. Investing in stocks requires adequate knowledge to buy, the capability to track companies and industries to decide on selling. More focus on mid-caps results in a volatile portfolio. If you can decide on stock investments, up exposure to large caps or stick to mutual funds.
GOALS
Wealth accumulation is difficult as you plan to retire by the age of 45. You have 11 years in hand and a daughter to wed, post retirement. Assuming yearly inflation at 6.5 per cent, your retirement target of Rs 1 crore, will be valued at about Rs 2 crore in 11 years.
Target for your daughter's wedding is Rs 7.5 lakh, which after 20 years will become around Rs 26.42 lakh.
Post retirement, you will not have a monthly salary, no fresh investments. Hence, accumulate the money required for the wedding by your retirement. Accumulating Rs 16 lakh in 11 years, will become Rs 26 lakh in the next nine years.
We do not know the tenure of your personal loan, but we assume it will close quickly. You aim to repay your loan three years prior to the schedule. Check with your lender if the EMI can be hiked. But, going by your current expenses/investments, a higher monthly loan outgo looks difficult, especially since you need to up your savings.
SOLUTIONS
You contribute Rs 17,000 a month towards investments. To fulfill your goals of Rs 2.16 crore by retirement, you need to up this amount to Rs 28,700 and keep increasing it at 15 per cent a year. For this, we assume yearly EPF contribution grows 10 per cent, earning an average of 7.5 per cent. If you can’t, here’s some help:
Lower your retirement corpus to Rs 75 lakh, equivalent to about Rs 1.5 crore in 11 years. Invest Rs 19,800 a month for this, increasing by 15 per cent a year.
Alternatively, keep your target amount but extend the retirement age by five years and keep investing on the same lines.
FUND PORTFOLIO
Redirect HDFC Taxsaver and HDFC LT Advantage SIP to other equity diversified funds (HDFC Top 200, DSPBR Equity, Magnum Contra or BSL Frontline Equity). Consider Fortis Flexi Debt or Canara Robeco Income for debt funds. This will balance your portfolio.
TERM INSURANCE
Cover worth Rs 15 lakh is insufficient for future needs. The cover should be for a sufficient amount to cover outstanding loans, future goals and regular expenses of dependents. Increase coverage.
MEDICAL INSURANCE
Is your wife and daughter also covered? In case of job change or post retirement, you will have no cover and will have to take a fresh policy.
EMERGENCY PLANNING
Create a contingency fund to meet immediate cash requirements for emergency. You may use your savings bank account money if any need arises.
PURCHASING GOLD
Purchase small amounts of gold as and when you can. You could also buy gold exchange traded funds (ETF). They invest in physical gold, each unit is equal to one gramme of gold. Near to the wedding, sell the units, buy physical gold.
The returns are based on the assumption that equity investments earn 10 per cent a year.